Stock To Buy: Banking Stock That Is Now A Favourite Of Analysts

SBI core earnings surpasses estimates

According to Prabhudas Lilladher, State Bank of India core earnings at Rs108 bn surpassed estimates by 13% mainly driven by lower provisions although core PPoP was a miss led by lower NII and higher opex. "Loan growth at ~16% YoY was ahead with strong offtake in IBG and domestic retail. Outlook on corporate is better as Rs1.2trn worth loans are in pipeline. Bank expects credit momentum to continue in FY23 and is targeting a loan growth of ~12% YoY. Due to seasonality, slippages spiked QoQ from 0.6% to 1.65% mainly led by SME, agri and retail while SMA 1&2 also increased," the brokerage firm has said.

Prabhudas Lilladher sets a price target of Rs 600 on the stock

With credit costs expected to remain benign i.e. below 1% in FY23/24E, core ROE could scale up to 16% in FY24E. "We maintain multiple at 1.4x on core FY24 ABV with SOTP based target price of Rs 600. Retain BUY," the firm has stated.

Sequential credit offtake was led by IBG (+9.2%) and domestic (+1.8%). Growth in IBG was led by syndicated loans and trade finance. Also, bank had started factoring services which helped them gain traction in US & UK. Within domestic growth was largely led by retail (+3.2%) while SME too saw decent traction. Although corporate growth was softer, potential is strong as already credit worth Rs1.2trn is in pipeline, while there is underutilization in WC of Rs2.5trn and unavailed TL is Rs2.5trn. Bank expects healthy credit momentum to continue in FY23 across segments and is targeting a loan growth of 12% YoY. Although SA rate is low at 2.7%, the bank would follow a more calibrated approach to increasing deposit rates.

Motilal Oswal sets a price target of Rs 625 on the stock

Broking firm, Motilal Oswal has set a price target of Rs 625 on the stock. NII stood a tad weaker. "However, the outlook remains encouraging as the bank benefits from the re-pricing of its floating rate loan portfolio, amounting to 74% of total loans. We expect NII to grow at an average 16% over FY22-24," the brokerage has said.

Despite a rise in fresh slippages to INR101b, the GNPA/NNPA ratio declined marginally by 6bp/2bp QoQ to 3.91%/1% in 1QFY23, led by recoveries and upgrades. The restructured book fell to 1% of loans.

NII growth to remain supported

According to Motilal Oswal, State Bank of India has delivered a modest 1QFY23, dragged by higher MTM losses of INR65.5b and a slight decline in margin. However, strong control on OPEX enabled a 14% YoY growth in core PPOP. Loan growth was strong, and the bank expects to sustain the momentum with Retail being the torch bearer. Stability in the rate environment is averting any further MTM losses. The high mix of floating loans, which will benefit from a re-pricing of loans, will support NII and the overall earnings trajectory in coming quarters.

Price target of Rs 625 on SBI

Its asset quality performance was stable, with a marginal improvement in headline asset quality, despite a seasonally weak first quarter, while the restructured book remains under control at 1%. We expect credit cost to moderate to 0.9%, enabling 29% earnings CAGR over FY22-24. "We expect the bank to deliver a FY24E RoA/RoE of 0.9%/17%. SBIN remains our conviction Buy in the sector. We revise our target price to Rs 625 (1.2x FY24E ABV and INR 202 from subsidiaries)," the brokerage has said.

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